Spain To Boost Bond Issuance In 2013 As Other Euro Nations Reduce Sales

By Teresa Rivas

While most major European nations will be reining in bond sales in 2013, Spain will be bucking the trend, according to a report by Lloyds Banking Group and Morgan Stanley.

While Spain sold 97.1 billion euros ($128 billion) in bonds this year, without the help of the European Central Bank’s bond buying program, the firms expect Spain to increase its issuance to 110 billion euros in 2013. Still, the official total remains up in the air: In note from Morgan Stanley earlier this month, analysts noted that Spain would need to raise 111 billion euros next year, while the nation’s Treasury was guiding for just 90.4 billion euros as of mid-month.

A Bloombergreport quotes Lloyd’s strategist Achilleas Georgolopoulos: “The funding needs increase pressure on Spain, which could force them to ask for aid…What we’ve been missing in 2012 is a trigger, and issuance could be the trigger point. The figure has an in-built assumption of Spain asking for aid in the first quarter.”

Other experts also note that Spain will be unlikely to be able to sell necessary debt without ECB aid.

Investors are still demanding a premium to hold Spanish versus German government debt: While that premium ballooned to as much as 650 basis points this summer, and has since receded to around 400 basis points (in part thanks to pledges from the ECB), that figure is still ahead of 2011’s average of 280 basis points.

The Continent’s five other biggest borrowers—Belgium, France, Germany, Italy and the Netherlands—are expected to raise less cash from investors next year.

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